What You Need To Know

Transcription

1 in the news Nonprofit Organizations January 2014 IRS Issues Proposed Regula ons Regarding Sec on 501(c)(4) Organiza ons In this Issue: Proposed Regulations Comments Solicited... 2 What You Should Do Now... 3 For More Information... 4 O n November 26, 2013, the Department of Treasury and Internal Revenue Service ( IRS ) released proposed regula ons regarding ac vi es of Sec on 501(c)(4) social welfare organiza ons that will be treated as poli cal ac vi es. The proposed regula ons would replace the current facts and circumstances approach of determining poli cal ac vity with a bright line defini on. Simultaneously, the IRS requests comments on several ma ers, including what propor on of a Sec on 501(c)(4) organiza on s ac vi es must promote social welfare. What You Need To Know Background Under the current Treasury regula ons, which have not been amended since 1959, a Sec on 501(c)(4) organiza on must be primarily engaged in promo ng the common good and general welfare of the community. The current Treasury regula ons also state that engaging in poli cal campaign ac vity does not promote social welfare. Accordingly, an organiza on that conducts poli cal campaign ac vity as its primary purpose will not qualify as a Sec on 501(c)(4) social welfare organiza on. This IRS currently uses a facts and circumstances analysis to make this determina on. Atlanta Chattanooga Chicago Dallas Denver Edwardsville Jefferson City Kansas City Los Angeles New York Overland Park Phoenix St. Joseph St. Louis Springfield Topeka Washington, D.C. Wilmington polsinelli.com

2 Proposed Regula ons The proposed regula ons are designed to reduce the need to conduct fact intensive inquiries by replacing this test with more defini ve rules. These new rules center on the defini on of candidate related poli cal ac vity. The proposed regula ons state that the promo on of social welfare does not include direct or indirect candidate related poli cal ac vity. The proposed regula ons define campaignrelated poli cal ac vity as: 1. Any communica on expressing a view on, whether for or against, the selec on, nomina on, elec on, or appointment of one or more clearly iden fied candidates or of candidates of a poli cal party; 2. Any public communica on, within 30 days of a primary elec on or 60 days of a general elec on, that refers to one or more clearly iden fied candidates in that elec on or, in the case of a general elec on, refers to one or more poli cal par es represented in that elec on; 3. Any communica on the expenditures for which are reported to the Federal Elec on Commission, including independent expenditures and elec oneering communica ons; 4. A contribu on (including a grant, subscrip on, loan, advance, or deposit) of money or anything of value to or the solicita on of contribu ons on behalf of (a) any person, if the transfer is recognized under applicable federal, state, or local campaign finance law as a reportable contribu on to a candidate for elec ve office; (b) any Sec on 527 organiza on; or (c) any other type of tax exempt organiza on that engages in candidate related poli cal ac vity; 6. Distribu on of any material prepared by or on behalf of a candidate or by a Sec on 527 organiza on, including wri en materials and audio and video recordings; 7. Prepara on or distribu on of a voter guide that refers to one or more clearly iden fied candidates or, in the case of a general elec on, to one or more poli cal par es (including material accompanying the voter guide); and 8. Hos ng or conduc ng an event within 30 days of a primary elec on or 60 days of a general elec on at which one or more candidates in the elec on appear as part of the program. As to the first three items, the communica on must contain words that expressly advocate, such as vote, oppose, support, elect, defeat, or reject, or be suscep ble of no reasonable interpreta on other than a call for or against the selec on, nomina on, elec on, or appointment of one or more candidates or of candidates of a poli cal party. Ac vi es conducted by an organiza on include ac vi es paid for by the organiza on or conducted by a director, officer, or employee ac ng in that capacity or by volunteers ac ng under the organiza on s direc on or supervision. 5. Conduct of a voter registra on drive or get out thevote drive; Page 2 of 5

3 Comments Solicited Although it was expected, the proposed regula ons do not address the ques on of how much poli cal ac vity an organiza on may engage in and s ll qualify under Sec on 501 (c)(4). The preamble to the proposed regula ons indicates that the IRS is considering whether the current standard that a Sec on 501(c)(4) organiza on must be primarily engaged in social welfare ac vi es should be retained, and, if so, whether it should be more precisely defined. The Treasury Department and the IRS are solici ng comments from the public as to the following: The propor on of an organiza on s ac vi es that must promote social welfare for an organiza on to qualify for tax exemp on as a social welfare organiza on; Whether addi onal limits should be imposed on any or all ac vi es that do not further social welfare; How to measure the ac vi es of organiza ons seeking to qualify as exempt social welfare organiza ons; Whether the same or a similar approach, reflected in this proposal, should be adopted in addressing poli cal ac vi es of other types of tax exempt (Sec on 501(c)) organiza ons, par cularly charitable (Sec on 501(c)(3)) enes, labor organiza ons (Sec on 501(c)(5) enes), and business leagues (Sec on 501(c)(6) enes); Whether this same or similar approach should be used in defining exempt func on ac vity of poli cal organiza ons (Sec on 527 organiza ons). What You Should Do Now If your organiza on is a Sec on 501(c)(4) social welfare organiza on, you should be aware of the new proposed rules and determine how they may impact the measurement of your organiza on s poli cal ac vity for purposes of repor ng requirements, the Sec on 527 tax and the primary purpose test. Other exempt organiza ons, including Sec ons 501(c)(3), 501(c)(5) and 501(c)(6) organiza ons also should take note as the rules poten ally could reach these organiza ons. Finally, your organiza on may consider providing comments to the IRS regarding the proposed regula ons, so that your concerns can be heard. Page 3 of 5

4 For More Informa on If you have questions regarding the proposed regulations, please contact: Thomas J. Schenkelberg Practice Area Chair Douglas K. Anning Practice Area Vice Chair Virginia C. Gross Bruce R. Hopkins John F. Crawford Alicia M. Kirkpatrick To contact another member of our Nonprofit Organiza ons law team, click here or visit our website at > Industries > Nonprofits > Related Professionals. To learn more about our Nonprofit Organiza ons prac ce, click here or visit our website at > Industries > Nonprofits. Page 4 of 5

5 NONPROFIT ORGANIZATIONS ABOUT About Polsinelli real challenges. real answers. SM Serving corpora ons, ins tu ons, entrepreneurs, and individuals, our a orneys build enduring rela onships by providing legal counsel informed by business insight to help clients achieve their objec ves. This commitment to understanding our clients' businesses has helped us become the fastest growing law firm in the U.S. for the past five years, according to the leading legal business and law firm publica on, The American Lawyer. Our more than 690 a orneys in 18 ci es work with clients na onally to address the challenges of their roles in health care, financial services, real estate, life sciences and technology, energy and business li ga on. The firm can be found online at Polsinelli PC. In California, Polsinelli LLP. About this Publica on If you know of anyone who you believe would like to receive our e mail updates, or if you would like to be removed from our e distribu on list, please contact Kim Auther via e mail at KAuther@polsinelli.com. Polsinelli provides this material for informa onal purposes only. The material provided herein is general and is not intended to be legal advice. Nothing herein should be relied upon or used without consul ng a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regula ons and other legal issues. Receipt of this material does not establish an a orney client rela onship. Polsinelli is very proud of the results we obtain for our clients, but you should know that past results do not guarantee future results; that every case is different and must be judged on its own merits; and that the choice of a lawyer is an important decision and should not be based solely upon adver sements. Polsinelli PC. In California, Polsinelli LLP. Page 5 of 5